31 May 2016

In the last state elections
for almost a year, the ruling BJP had a notable success in Assam. In Tamil Nadu
and West Bengal, regional parties strengthened their holds and in Kerala,
voters switched from one left party to another. Overall, the results confirmed continued
marginalisation of Congress but will only boost the ruling party’s upper house
position by half a dozen seats. Neilsen consumer confidence research in the
first quarter measured India at 134, an increase of three points and the
highest level since 2007. Domestic mutual funds reported opening a record
number of more than 400,000 new accounts in April, bringing the total to 4.8
million. Following the Nestle Maggi Instant Noodle controversy, The Food Safety
Standards Agency of India is drafting new regulations on quality standards of
instant noodles and of ingredients. SEBI is tightening regulations on the
issuance of P-notes to improve transparency and impose CDD standards to prevent
misuse of this access channel to India markets for FPIs. This channel used to
account for more than 40% of FPI holdings but this has fallen to less than 10%.

30 May 2016

Our interest in the late
results also brought a series of positive surprises. Indian Hotels, under new
management reported sales ahead by 12.5% and profits by 48.3%. The company is
realigning its portfolio, including the sale of key US properties, to focus its
growth efforts in Gulf Cooperation Council (GCC) countries and South East Asia.
Lupin saw sales ahead by 34% and profits by 47.5%; the company reported good
progress in talks to resolve USFDA inspection observations. Torrent Pharma
reported sales ahead by 21.5% and profits by 174.6%, from a weak comparable
period. Pidilite reported sales ahead by 12.2% and profits by 56.3% on the
strength of a surprisingly good improvement in operating margins. Heidelberg
Cement saw sales volumes contract by 1.4% but improved operating metrics
brought a 173% boost in profits. Finally, Bajaj Auto registered notable success
in boosting market share with a 14.2% jump in sales which drove profits up by
29.2%.

A recovery in the price of
oil toward $50 a barrel carried equity markets with it. In India, the Nifty
moved sideways, holding in the 7500-8000 range through the later part of the Q4
results season. Then a series of late positive surprises from major public
sector enterprises prompted a surge of buying, driving the benchmark index
firmly through the 8ooo level after a long wait. The Nifty closed 342 points to
the good at 8157 for a gain of 4.4% after trading in a range of 5.8%. The
average daily trading volume was $3bn and though two weeks’ FPI trading was a
net $160mil of selling, daily FPI trading was net positive in the last few
days. Domestic institutions were net buyers of nearly $600mil over the same
period. Market breadth was not particularly strong, with advances and declines
roughly in balance but when foreign investors started buying again, there was
heavy concentration in Banks and IT as well as in index heavyweights like ITC
and Reliance. Volatility was stable, the India VIX trading mostly down from its
opening of 17, a brief spike to 18 did not last and it closed at 15, two points
lower. Nifty futures closed at a premium of 0.6% to cash.

18 May 2016

Core sector growth in March
was 6.4%, compared to 5.7% the previous month. PMI numbers for April were
softer: the Services PMI fell from 54.3 to 53.7 and Manufacturing PMI weakened
to 50.5 from 52.4 but it is worth noting that the month included several public
holidays. April Indirect Tax collection jumped by 42% after the government
again took advantage of the low level of energy prices to raise duty. Rising
food prices brought a jump from 4.9% to 5.4% in the CPI measure of inflation
but the negative surprise is not seen as a trend reversal given increasing
optimism about the coming monsoon season. The RBI still sees room for more interest
rate cuts to support growth.

17 May 2016

The long-awaited Bankruptcy
Bill has now passed both houses of parliament and awaits presidential assent.
This is a major reform measure which, by introducing a much accelerated process
for reorganisation of defaulting borrowers, is expected to facilitate
development of a domestic corporate debt market. Parliament also passed the
Finance Bill, which includes reform of the monetary policy decision-making
process and the relationship between the RBI and central government; the RBI
supports the new process. Implementation of the Direct Benefit Transfer
mechanism for LPG has saved the government $1bn in FY16 on payment of the
cooking gas subsidy.

16 May 2016

Interesting results this
time around included Nestle India, which is strongly outperforming expectations
for market share recovery from the Maggi Instant Noodles controversy. The
company reported sales down by just 8.4% and profits by 22.4%: a significant
positive surprise. Shemaroo Entertainment reported sales ahead by 18.4% and
profits by 29.1%, another major positive surprise. Kotak Mahindra Bank reported
net interest income ahead by 46.8%, including the integration of its
acquisition of ING Vysia Bank. Net profits were 16.9% up, year on year.
Finally, Indraprashtha Gas reported sales down by 8.4%, reflecting much lower
energy prices but profits grew by 12.3% as conversion of vehicles to CNG
accelerates.

TCS’s proprietary bank
software BaNCS for securities trading and settlement was deployed by the two
largest banks in Myanmar on the opening of the Yangon Stock Exchange. Infosys
is expanding its relationship with Microsoft to simplify and automate migration
to Microsoft products, especially Azure digital transformation for clients. Bajaj
Auto has opened FY17 strongly by shifting more than 200,000 bikes in a month in
the domestic market for the first time in three years in April. Indraprashtha
Gas opened a record 72 new CNG filling stations in New Delhi so far this
calendar year as demand accelerates due to increasing pressure from
environmental regulation. Lupin plans to strengthen its branded and specialty
drug business in the US with new products, brand acquisitions and specialty
buyouts with a therapy focus.

Equity markets struggled to
deal with variable economic signals as recovering energy prices met strong US
consumer figures, but weaker employment numbers. India continued to plough its
own furrow as evidence improving earnings and progress on reform provided a
floor for the equity markets. The Nifty softened just 35 points since our last
commentary, dropping 0.5% to end at 7815 after trading in a range of just over
3%. Average daily trading volumes slipped back to $2.8bn as FPIs sold $82mil
while domestic institutions mopped up some $320mil in cash equities. Volatility
was stable in the high teens, as the India VIX closed where it opened at 17
after trading no more than a point to the upside during the whole period.
Market breadth was slightly negative with declines outrunning advances by six
to four with positive concentration in IT and negative in ICICI Bank in
particular on the back of quarterly results. Nifty futures closed at a premium
of less than 0.5% to cash.

5 May 2016

Lupin has strengthened its branded drug portfolio in the US by re-launching a drug to control post-partum blood loss. Infosys has invested an undisclosed amount from its global innovation fund in a stake in Trifacta, which develops productivity platforms for data analysis, management and manipulation. TCS announced a strategic partnership with Vistara in IT services, including application development. Kalpataru Power Transmission announced $175mil in new contracts in domestic and overseas markets. Pidilite announced the acquisition of a 50% interest in an Italian manufacturer of wood finishes. The company will invest an initial $9.7mil with a similar follow-on investment in a joint venture which will be the exclusive distributor of wood coatings in India.

The improving FDI numbers suggest that the government is seeing some success in creating a hospitable investment climate for foreign investors. The current second budget session of parliament shows signs of visible improvement in progress on essential reforms, with better prospects for passage of a GST Bill along with the Bankruptcy and Factories’ Bills. None of these will bring immediate transformation but would mark a high profile success for the government after a long period of low-profile piecemeal reforms which tended to create an aura of disappointment. With a surge in optimism prompted by above-average monsoon forecasts, downside risk in the markets appears to be limited.

4 May 2016

Full implementation of the 7th ten-year pay commission award for the public services would add the equivalent of 0.7% of GDP to government expenditure. On the other hand, the cost of fuel subsidies has fallen by 29% in FY16, a saving of about $8bn to the exchequer. The country added 3.5GW of wind energy capacity in FY16 compared to a target of 2.4GW.

3 May 2016

In eleven months of FY16 to end-February, India generated $51bn in foreign direct investment, the highest level ever for a comparable period. At the same time, Indian entrepreneurs raised more than $7bn in capital by way of preferential offerings to finance investment in their businesses. Landline telephone use continues to decline in India but the mobile user count reached 1.1bn by the end of March. Confirming much improved project execution, the Roads Minister has set a target of 25,000km in contract awards in FY17 compared to 10,000km in FY16.

Kotak and HDFC banks were in demand among banks and TCS in IT while SBI, ICICI Bank, HCL Tech and Reliance were heavily offered. Nifty futures closed at a premium of 1.1% to cash. We had two results of interest, Agro Tech Foods, which reported sales ahead by 6.6% but profits down by 50% as margins came under pressure. HCL Tech reported sales ahead by 15.4% and profits by 14.4%.

2 May 2016

Major equity markets were weak as the Bank of Japan ducked an opportunity for additional stimulus and the Fed held its hand on raising interest rates amid evidence of a softer economy and weak company results. Indian equities were soft despite optimism on growth and monsoon forecasts. The Nifty shed 49 points to close 0.6% lower at 7850 after trading in a range of 2.2%. Average daily trading volumes were ahead of the trailing twelve-month average at $3.3bn as FPIs added $190mil in net cash equity purchases and domestic institutions sold a net $216mil. Volatility was stable in the high teens as the India VIX mostly traded to the downside, around 15 before closing at almost 17 for a gain of a point on the week. Market breadth was weak, with declines ahead of advances by three to two.

About Himalayan Fund NV

The Himalayan Fund N.V. is an investment company with its primary objective to generate long-term capital gains for shareholders by investing in India.

This blog shares with you interesting, weekly news about the Indian economy. It provides insights about the financial situation in India and its market. The team of Himalayan Fund offers knowledge about investment opportunities relating to India.

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